https://gov.optimism.io/t/review-gf-phase-1-proposal-overnight-fi/3536
We are in favor of Overnight.fi’s proposal as written. They’ve achieved strong organic TVL by any measure on Optimism ($4.5M in a single month, several thousands of wallets, trading volume way above their weight), which is likely to continue as they launch their next wave of products across multiple partner protocols.
Their proposal is among the only ones to identify a target user segment, one that does indeed happen to remain active: the risk-averse stablecoin yield maximizer. We think there is plenty of meat on the bone here and see an opportunity to siphon a lot of interest from Mainnet.
The centerpiece of Overnight.fi 6 is the USD+. USD+ is a rebasing token backed with a growing collateral base earned from stablecoin yield strategies. Because a USD+ position inherently increases in value, there is a lot of exciting activity it can generate through its defi composability: pair USD+ in an LP and realize another layer of compounding and opportunity for arbitrage volume. Stake it as collateral and watch your LTV decrease. There is nothing else like this in crypto, let alone Optimism, and this lack of precedent makes their strategy a little difficult for people to apprehend. This is why we’re taking it upon ourselves to overexplain a bit on behalf of the team.
By contract, Optimism has been shouting from almost every direction that they want Yearn, a better-known protocol, to show up: well, this is a whole new spin on Yearn, one that promises even more defi composability through its rebasing stable. It’s a protocol that wants to make Optimism its home, and along with a tight-knit developer community that is poised to make the most out of this offering, watch out.
Overnight also has a fully-subscribed offering called ETS, which is a new entry in the field of delta-neutral strategies.
By any measure there has been a lot of organic traction in the single month they’ve been on Optimism. On no OP incentives they’ve accumulated more TVL and users than literally half of OP defi projects granted funding. They haven’t just shown signs of PMF in crypto — they’ve shown signs of PMF on Optimism itself. If we’re not supporting their growth, we’re not sure who we should be supporting.
In addition, the team are well known to the OP developer community. Solarcurve and Jack have both worked with them to integrate their product, and the team have been outstanding in their speed and professionalism. They’ve also done a fair bit of bizdev in their own right, facilitating introductions to developers on other chains looking to migrate to Optimism. We expect great things from them and want to see them thrive on Optimism.
200,000 OP liquidity mining on Velodrome and Balancer.
This would grow USD+ and ETS liquidity on Optimism, but also increase liquidity for the protocols and pairs USD+ and ETS collateral is invested into (100% is invested on the same chain)
Dex incentives in Overnight’s case will continue to have a lasting impact after they’re fully used because both dexes return fees earned as voting incentives, which can then be compounded into sustainable liquidity provision — a key engine of this yield protocol’s growth.
The Balancer boosted pool in particular should have a high intrinsic yield by depositing most of the pool’s USDC and DAI into Overnight’s USD+ and DAI+ products. Even after OP incentives are exhausted, this base yield will be highly competitive for stablecoin LPs (and Balancer will continue returning fees earned as voting incentives).
This is a classic case of a benefit with a multiplier: this grant incentivizes liquidity provision which increases capacity for yield-seeking capital, which goes on to be active with a range of defi protocols seeking more activity. We’re not big fans of liquidity mining (and most cases of liquidity mining are going to Velodrome, Balancer and the like, so this is arguing against our interests) but this is an exceptional case due to its inherent support for the protocol and the capability to sustain itself after rewards end.
100,000 OP for expansion of "+" and ETS product lines
ETS based on OP/USDC in particular, as well as DAI+, potentially, BTC+ and/or Eur+ etc.
Delta-neutral products are relatively unproven but there is potential for innovation here. Ultimately we view this spend as a reasonable test to see if ETS can find PMF because in principle it presents a compelling use for OP and continues to attract. Our question is what in the grant is catalytic — that is, what makes this economical where it otherwise wouldn’t be?
100,000 OP for building insurance product